The Disadvantages of a Reverse Mortgage

Owning a home is a very popular goal for many Americans. It is part of the American dream that a lot of people work very hard to realize. You probably want to purchase a house also. However, just like other people, you do not have the money to get a new home. The average person has to get a home loan in order to purchase a home. Luckily, you have a lot of home loans to select. This article will go over some of the home mortgages that you can choose and their various attributes.

Fixed Rate Mortgage

The most popular and known type of mortgage is the fixed rate mortgage. People prefer this type of loan the most because it supplies stability. Monthly payments will not change over the course of the loan, unless the changes are made voluntarily. A fixed rate mortgage has a rate of interest that cannot be modified over the course of the loan. The rate at the time of origination is the same rate of interest that will continue for the duration of the loan.

Most people will choose a 30 year mortgage. However, many homeowners also like to get 15 year mortgages as well. So, if you take a loan with a fixed rate mortgage, you will have the same monthly payment for 15 or 30 years. This is what appeals to most people when it comes to fixed rate mortgages. This is not that hard to handle financially through the years. The monthly payment is always known. You dont have to stress out about the interest rate changing.

HECM Reverse Mortgage

A reverse mortgage tends to be the loan that is commonly overlooked. If you are at least 62 years of age, make sure you at least check out a reverse mortgage. The ability to have a loan and not have to make a payment can stretch your retirement dollars just a little bit further.

FHA Loans

FHA loans were formulated for people who are first time buyers or people who do not have much money to put on a new home purchase. In addition to speedy approvals for first time home buyers, they are only required to place a three percent down payment on their new home purchase. This is because the Federal Housing Administration backs FHA loans. All in all, a government backed mortgage is much simpler to get than other kinds of fixed mortgages.

VA Loan

A VA loan is a different kind of fixed rate loan that is guaranteed by the FHA. There are basically two kinds of people who will get approval for this kind of loan. First, you must have a previous or current history of serving in the military. The second is someone who is a surviving spouse of an active military member. Many times a veteran can qualify for a VA home loan, even without providing a down payment.

Conventional ARM

Adjustable rate mortgages do not give the same type of stability and security that fixed rate mortgages can. The rate of interest for an ARM changes according to whatever the prevailing market rate may be. As a result, your monthly payment will always change based upon whatever the current market rate may be. Some ARMs have a cap on the interest of the loan for life.

Do not forget that your monthly loan payment is the combined amount of principle and interest. Although the principle will stay the same each month, the interest portion will adjust according to the market rate. Even though a majority of people do not like this specific feature when it comes to ARMS, but this kind of mortgage is still a good way to get more value or home for the money that you are dishing out. This is one of the key reasons that adjustable rate mortgages are so popular. However, the duration of the loan is usually for no more than five or seven years. The loan schedule has manageable payments at the beginning of the loan. But, the final payment is one huge lump sum amount. The homeowner has to pay this large amount at one time or make arrangements to get another loan with better financing.

Interest Only Mortgages

With an interest only loan, you will have to pay only the interest on the loan for a certain amount of years. Then you will be required to pay monthly amounts for both the principle and interest. In the same fashion of a balloon mortgage, this type of loan is easy to pay until the end of the loan or when the loan adjusts.

In conclusion, these are just a few of the types of home loans that are available. It might be harder to qualify for some than others. But they are there to help you realize your dream of getting a new home.

For years, I have been teaching baby boomers about the advantages, in addition to the disadvantages of reverse mortgages . When carefully informed, the property owner can come up with a decision which they feel comfortable with.

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